Culpepper Survey - Equity Compensation and LTI Practices: Trend Towards Diversifying LTI Portfolio Mix Continues - 5 May 2010

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Equity Compensation and LTI
Practices:

Trend Towards Diversifying LTI Portfolio Mix Continues

May
2010

Results from the 2010 Culpepper Equity Compensation &
Long-Term Incentives Practices Survey reveal that an
increasing number of technology and life science companies are
diversifying their equity compensation and long-term incentive
programs for U.S. employees with a portfolio mix of plans.

Topics covered in this report include recent changes to LTI
plans, types of equity and LTI plans offered, eligibility by job
level, stock ownership guidelines, frequency of grant cycles,
vesting, performance measures, risk assessment, and clawback
provisions.

Key Survey
Findings and Trends

• 
  

  
  Changes for 2010: Fifty-five percent of companies reported
  making one or more significant changes to their 2010 LTI
  plans. The most common changes included reducing the number
  of employees eligible for LTI plans and increasing the size of
  LTI grants to eligible employees.

  
  


• 
  

  
  Most Companies Ride Out the Storm of Underwater Stock
  Options: Despite facing challenges with underwater options,
  most companies have chosen to hold steady with their option
  plans and not take action to address underwater options or
  drop options in favor of another type of LTI plan.

  
  


• 
  

  
  Stock Options Continue Reign as LTI King: For most companies
  
  (65%), stock options remain the LTI vehicle of choice.

  
  


• 
  

  
  Restricted Stock Plans: Restricted stock plans continue to
  gain in popularity with over 50 percent of companies
  offering them to employees.

  
  


• 
  

  
  Performance-Based LTI Plans: Nearly one-third of companies
  use performance-based LTI plans. However, few companies rely
  solely on performance-based LTI plans due to challenges
  caused by economic uncertainties in setting performance
  targets.

  
  


• 
  

  
  LTI Portfolio Mixes Increase: An increasing number of
  companies with LTI programs are diversifying their LTIs with
  a portfolio mix of different types of LTI plans.
  Seventy-four percent of companies provide a combination of
  two or more types of LTI plans.

  
  


• 
  

  
  Eligibility Rises with Job Level: The most common criteria
  used to determine whether an employee is eligible for
  long-term incentives is job level. In most companies,
  executives and management-level employees are significantly
  more likely to be eligible for long-term incentives than
  non-management employees.

  
  


• 
  

  
  Stock Ownership Guidelines: Most companies do not require
  their employees or board directors to own company stock.
  However, large public companies are much more likely to have
  stock ownership guidelines for executives and board
  directors than small and mid-size companies.

  
  


• 
  

  
  Clawback Provisions: On average, about one-third of
  companies reported having clawback provisions in their LTI
  plans. However, over 50 percent of large companies have
  clawbacks.

  
  


• 
  

  
  Stock Plan Evergreen Provision: Only nine percent of
  companies have stock plans with an evergreen provision that
  automatically gives the board of directors a renewable pool
  of stock shares each year to distribute to employees.

  
  


• 
  

  
  ESPPs Increase: An increasing number of companies are
  turning to employee stock purchase plans as an alternative
  vehicle to provide broad-based employee ownership.

  
  

Recent Changes to LTI Plans


Respondents were
asked to report significant changes to equity compensation and
LTI plans over the past two years. Fifty-five percent of
companies reported making one or more significant changes to
their 2010 LTI plans. The most common changes included reducing
the number of employees eligible for LTI plans and increasing
the size of LTI grants to eligible employees (Table 1).

Types of Equity Compensation & LTI Plans Offered


Stock options
continue their reign as king of long-term incentives and remain
the LTI vehicle of choice for 65 percent of companies (Table
2).

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